Guy F. Courtin – Vice President of Industry and Global Alliances, Tecsys.
Tariffs are currently dominating headlines, and while the long-term impact they’ll have on both the trade deficit and GDP remains to be seen, we’re already seeing how they are impacting global supply chains.
Retail giant Walmart, for instance, has “extended its logistics capabilities, offering procurement leaders access to ocean freight services from Vietnam,” according to Procurement Magazine. And General Motors and some other U.S. automakers recently “signed rare multiyear fixed-price contracts” with Cleveland-Cliffs for steel, per a CBT News article.
Tariffs, though, only represent one type of disruption that supply chains face.
The Three Categories Of Disruptions
Disruptions can be categorized into three groups: man-made, acts of god and technology. Each category has unique characteristics. Let’s define them.
Man-Made
Man-made disruptions include tariffs, labor strikes, geopolitical conflicts and even pirates. Whether caused by lone actors or nation-states, they all stem from human actions.
For example, recently, Air Canada’s staff went on strike, causing the airline to start “canceling long-haul international flights, which carry most of the airline’s cargo.” The Russia-Ukraine war has threatened access to essentials such as wheat, nickel, platinum and titanium. Pirates and conflict in the Red Sea forced maritime freight to reroute around the Cape of Good Hope, increasing travel time by 38% for tankers and 48% for cargo ships. The common thread? Humans were behind them all.
Acts Of God (Force Majeure)
Volcanoes, hurricanes and floods are some of the forces of nature that can cause supply chain disruptions.
Iceland’s volcano Mount Eyjafjallajokull erupted 15 years ago, creating massive disruptions to air travel and cargo. Just last year, Hurricane Helene created a severe shortage of national IV fluid supplies when a large manufacturer was flooded. In turn, “some hospitals across the U.S.” had “to postpone elective surgery and other nonemergency procedures to safeguard their stock,” according to NBC News. In 2011, catastrophic flooding in Thailand had a major impact on automotive supply chains. Natural disasters can strike quickly and without warning—and ripple through industries.
Technology
Digital viruses, ransomware and hacking—while technically man-made, these warrant their own category. As supply chains become more digitized and modernized, the risks are also growing.
Target suffered a massive data breach after vulnerabilities in an HVAC supplier’s billing system were exploited. The hack cost Target millions of dollars. In 2021, the Colonial Pipeline, which is responsible for much of the U.S. East Coast’s oil supply, was hit by ransomware, leading to “temporary shortages.” As supply chains increasingly become digitized, I expect such technological disruptions to grow—and as supply chains become more interconnected, data itself becomes their lifeblood and vulnerability.
Building Resilience In Supply Chains
So, if you’re a supply chain stakeholder, how do you navigate these three forces?
First, stop burying your head in the sand. Assuming disruptions won’t happen is not a strategy. Instead, assume your supply chain will be impacted by a disruption. While ignorance might be bliss, it won’t allow your supply chain to survive, let alone thrive.
Second, keep disruption management top of mind. You and your colleagues on the leadership team shouldn’t view disruption management as a one-off activity. Constantly evaluating and game planning for potential disruptions must be woven into your corporate DNA. From the C-suite and boardroom to the frontlines, scenario planning must become a regular exercise.
It’s also important to leverage digital tools to understand your network. Digital twins are powerful tools for running scenarios and stress-testing your networks. Rather than modeling just a few specific nodes of your supply chain, you and your leadership team should aim to replicate as much of your network as possible. Audit your supply chain to identify potential vulnerabilities and continue to stress test your supply chain.
Develop a disruption matrix as well. Map out vulnerabilities across man-made, natural and technological categories and make sure you have a plan in place for each. For example, a pharmaceutical company in Florida must plan for man-made disruptions—from port strikes that could stop the flow of raw materials to hurricanes that could shut down their facilities. Big box retailers have to be agile as they respond to tariffs or conflicts overseas, as those circumstances can impact transportation costs and access to raw materials. And every organization will need to scenario-build for cyber-attacks as our digital footprint increases. Supply chains should revisit this matrix often to ensure readiness and resilience.
Finally, balance trade-offs between disruptions. Supply chain professionals should weigh how decisions to address one disruption may increase the risk of another. Deciding to mitigate a potential man-made disruption, such as moving out of one location due to local government policies, might place you somewhere where the risk from natural disasters is higher.
The Only Constant: Disruption
The one constant in supply chains? Disruptions, whether on a global scale, such as pandemics, or on a more micro scale, as a local labor strike. Supply chain professionals need to pivot from being seen as the back-office foundation (which they still are) and assume the responsibility of anticipating, and most importantly, reacting to, disruptions. Preparedness is no longer an option. It’s mission-critical.
Being aware of and prepared for disruptions from every angle will help the flow and process of your supply chains remain as smooth as possible.
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